FTC Subpoenas: What Do Company Owners, Executives, and In-House Lawyers Need to Know?
The Federal Trade Commission (FTC) investigates companies of all sizes for a broad range of federal offenses. FTC investigations can target offenses ranging from consumer fraud to antitrust violations, and they can lead to enforcement proceedings that are either administrative, civil, or criminal in nature.
When conducting investigations, the FTC has a number of investigative tools at its disposal. These tools include various forms of subpoenas. When served with an FTC subpoena, it is imperative to carefully review the subpoena in order to determine what response is necessary, and it is important to promptly begin building a defense strategy that targets the underlying substantive allegations as well.
“FTC investigations can target a broad range of allegations, and the FTC has many powerful investigative tools at its disposal. Upon being served with an FTC subpoena, evaluating both the response burden and the risks presented by the investigation needs to become a top priority.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
3 Types of Subpoenas in FTC Investigations
During investigations into alleged unfair, deceptive, and anti-competitive practices, the FTC can use three different types of subpoenas to obtain records and information from targets, suspects, and witnesses. These are:
Civil investigative demands (CIDs)
1. Civil Investigative Demands (CIDs)
A civil investigative demand (CID) is a form of administrative subpoena that the FTC can issue directly to subpoena and CID recipients. The Federal Trade Commission (FTC) is one of only a handful of federal agencies that have been granted the authority to issue CIDs in furtherance of their investigative efforts. As the FTC itself explains (internal citations omitted):
“By virtue of the FTC Act Amendments of 1994, the [FTC’s] Bureau of Competition . . . may use ‘civil investigative demands’ (‘CIDs’) for investigations of possible antitrust violations . . . . [and] to investigate possible ‘unfair or deceptive acts or practices.’ The scope of a CID is different from that of a subpoena. Both subpoenas and CIDs may be used to obtain existing documents or oral testimony. But a CID may also require that the recipient ‘file written reports or answers to questions.’ In addition, Section 20 [of the Federal Trade Commission Act (FTC Act)] expressly authorizes the issuance of CIDs requiring the production of tangible things and provides for service of CIDs upon entities not found within the territorial jurisdiction of any court of the United States.”
As this quote demonstrates, the FTC’s ability to issue CIDs affords it substantial authority to compel targets, suspects, and witnesses not only to provide records and testimony, but also to provide “written reports or answers.” Thus, responding to a CID is often an extremely time-intensive endeavor, and entities that have been served with CIDs must begin their response efforts promptly in order to ensure that the subpoena and CID recipients do not miss their response deadline.
2. Commission-Issued Subpoenas
In addition to directly issuing CIDs, the FTC also has the authority to issue subpoenas without the need for judicial approval. These “commission-issued” subpoenas can compel the production of documents as well as oral testimony, which can be taken directly by FTC personnel. As the agency explains (internal citations omitted):
“[T]he FTC Act authorizes the Commission to ‘require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation.’ Any member of the Commission may sign a subpoena (pursuant to a Commission-issued resolution for compulsory process in the matter), and both members and ‘examiners’ (employees) of the agency may administer oaths, examine witnesses, and receive evidence.”
The FTC “routinely” uses its subpoena power to investigate allegations of unfair competition and anti-competitive market practices. The FTC can seek enforcement of its Commission-issued subpoenas in court (the same is true of CIDs); and, once a federal judge issues an order compelling compliance, non-compliance can lead to being held in contempt of court.
3. Judicial Subpoenas (Including Grand Jury Subpoenas)
In appropriate circumstances, the Federal Trade Commission (FTC) can also utilize judicial subpoenas to compel the production of records and testimony in furtherance of its investigations. This includes, but is not limited to, grand jury subpoenas issued when the evidence obtained through other investigative means supports (or appears to support) criminal charges.
Judicial subpoenas issued during FTC investigations carry the same weight and implications as they do in other federal law enforcement proceedings, and companies and individuals that have been served with judicial subpoenas must prioritize compliance. Failure to comply with a judicial subpoena, whether in whole or in part, can lead to severe consequences—both in terms of facing contempt proceedings and in terms of facing negative inferences in the underlying litigation.
Defense Considerations for Responding to FTC Subpoenas
Regardless of the type of FTC subpoena received, when faced with an obligation to respond, it is imperative to make informed and strategic decisions that take all pertinent considerations into account. For example, from a practical perspective, is it possible to fully comply with the subpoena by the response deadline? If not, how much more time would be needed, and are there grounds for seeking to reduce the subpoena’s scope? What are the implications of submitting a response in terms of possibly facing administrative, civil, or criminal charges? If there is a risk of facing charges, what can (and should) be done to mitigate any potential liability?
While every situation requires a targeted and custom-tailored response, here are five general defense considerations for responding to an FTC subpoena:
Conducting an Internal Risk Assessment
When responding to an FTC subpoena, it is necessary to concurrently assess the risk of the FTC’s investigation leading to administrative, civil, or criminal proceedings. An internal risk assessment should be organized immediately, and the assessment should be conducted under the oversight of the company’s outside defense counsel. Knowing whether and to what extent the information disclosed in response to the FTC’s subpoena could support allegations of unfair, deceptive, or anti-competitive practices is essential to formulating a defense strategy and plotting the company’s next steps.
Evaluating Grounds to Challenge the Subpoena
While the process of compiling documents in response to an FTC subpoena generally cannot be delayed (especially when the records requested are voluminous), it is important to evaluate any potential grounds for challenging the subpoena—potentially in whole, but more likely in part—concurrently with preparing the response. In the event that efforts to challenge the subpoena are successful, any documents that can be withheld can simply be excluded from the files made available to the FTC.
However, while challenging an FTC subpoena is a possibility, it is also important that the subpoena and CID recipients acknowledge that the grounds for challenging an FTC subpoena are fairly limited. In addition, federal judges will generally defer to the FTC’s investigative expertise when evaluating CIDs and Commission-issued subpoenas. So, while it is certainly worth evaluating any grounds to file a challenge, it is also important not to assume that a challenge will be successful—and to plan accordingly.
Meeting and Conferring with Agency Personnel
Prior to filing a formal motion to quash a CID or Commission-issued subpoena, it is first necessary to “meet and confer” with agency personnel. Under the FTC Act regulations, a motion to quash an FTC subpoena must, “be accompanied by a signed separate statement representing that counsel for the petitioner has conferred with Commission staff . . . in an effort in good faith to resolve by agreement the issues raised by the petition and has been unable to reach such an agreement.” These efforts to meet and confer must be undertaken prior to the deadline for filing a motion to quash, which is 20 days from the subpoena’s date of service or its return date, whichever is earlier.
Filing a Motion to Quash
If efforts to meet and confer do not produce a satisfactory result, or if the subpoena was issued by a federal district court judge, then the next step (aside from fully complying with the subpoena) is to file a petition or motion to quash. The grounds for challenging CIDs and Commission-issued subpoenas are different from those for challenging judicial subpoenas. The grounds for challenging a CID or Commission-issued subpoena include:
The “protected status” of information requested in the subpoena (i.e. protection under the attorney-client privilege or the privilege against self-incrimination)
Factual objections to the basis for the FTC’s subpoena
Legal objects to the validity of the FTC’s subpoena, or any part thereof
In contrast, judicial subpoenas issued in connection with FTC investigations are subject to challenge based on the same principles that apply to subpoenas and discovery requests generally (i.e. invalid service, lack of jurisdiction, overbreadth, insufficient specificity, and undue burden).
What are the Risks of Failing to Comply with a Federal Trade Commission Subpoena?
When faced with the prospect of complying with an FTC subpoena, it is important to have a clear understanding of the consequences of non-compliance. Depending on the nature of the subpoena and the other circumstances involved, non-compliance could have consequences ranging from a judicial compulsion to being held in contempt of court. Additionally, the FTC does not look favorably upon targets, suspects, and witnesses that are capable of complying with subpoenas, but fails to comply, and submitting a non-compliant response (or no response at all) will only serve to raise more questions while increasing the risk of prosecution.